The Contract Act

Introduction to Contracts
In our daily life we enter into a number of contracts from morning to
evening to satisfy our needs and requirements.

For example:- we purchase goods, we travel by bus, railways , we see

dramas and pictures , we borrow loans, we hire articles and so on.

In modern days no person is self-sufficient. Therefore, every one of us

has to enter into contracts with other persons to satisfy our wants and
requirements.

Not only persons enter into contracts but also Nations enter into
contracts with each other to satisfy their wants and requirements.
Object of the Law of Contracts
The main object of law of Contracts is to introduce security, stability
and definiteness in the commercial and business dealings of persons.

Every person enters into a contract to satisfy his want and

requirements or to fulfill his requirements.

So the main object of of law of contract is to ensure that What a man

has been promised shall be performed and what a man has been led
to expect shall be fulfilled

Further the law of contracts was passed to make the principles of and
procedures of Business transactions uniform throughout the country.
Law of Contracts ensures certainty in the performance of contracts by
compelling both the parties to perform their contract and compels a
party not performing his part of contract to pay damages to the other
party.
Object of the Law of Contracts
Every contract creates mutual rights and obligations between the
parties to a contract and both the parties are bound to discharge their
contractual obligations.

If one party fails to discharge his obligation under the contract, he is

bound to pay compensation to the other for any loss suffered by the
other party .

Every contract creates legal rights and obligations between the parties.
Laws of Contracts is concerned with the enforcements of these rights
and obligations. The persons are free to make any contracts for
themselves but law will not compel the performance of all such
contracts. The law of contract will compel the performance of only
such contracts as have satisfied the conditions prescribed by the
contract act.
Definition of a Contract

1. A contract is an agreement creating and defining obligations between

parties Salmond

2. A contract is an agreement enforceable by law ,made between two or

more persons by which rights are acquired by one or more to act, or
forbearances on the part of the other or others. Sir William Anson

3. An agreement is the legal source of a contract importing that one party

shall be bound to some performance which the other shall have legal
right to enforce. - Leak

4. An agreements enforceable by law is a contract. The Indian Contract

Act.
Essentials of a Valid Contract

According to the Section 10 the following are the essential conditions

of a valid contract :-

1. An offer and acceptance:- To start with there must be an agreement

between two or more parties. An agreement can be formed by one
party making a proposal and its acceptance by the other (to whom it is
made) When the proposal is accepted it becomes a promise or an
agreement.
2. Free Consent:- There must be a free consent of both parties: A
consent is said to be free when it is not caused by Coercion, undue
influence, fraud, misrepresentation, mistake.
Essentials of a Valid Contract
3. Competent parties:- parties to a contract must be competent to contract
i.e of age of majority and of sound mind and who are not disqualified
from contracting by any law. (i.e who are not enemies or criminals )

4. Lawful Object:- The agreement must have a lawful object. Section23 of

the Act lays down that object or consideration of an agreement is
unlawful if
a. It defeats the provisions of any law

b. It involves any injury to a person or the property of another

c. It is fraudulent

d. It is forbidden by law
Essentials of a Valid Contract
5. Lawful Consideration:-
The agreement must have a lawful consideration. What considerations
are unlawful are provided by Section 23 of the Act. An agreement is
illegal if its object or consideration is unlawful.

6.An agreement must not be expressly declared to be void :-

The act declares certain agreements e.g. an agreement in restraint of

trade, legal proceedings, marriage, an agreement, by way of wager
etc. expressly to be void. So the parties cannot enter into contracts
which are expressly declared to be void and are unenforceable by law.
Essentials of a Valid Contract
7. Writing and Registration:- The agreement must comply with the
provisions of law requiring it to be in writing or attested or registered
e.g. Contracts of sale or purchase of immovable properties such land
or houses must be in writing and they must be registered according to
law. Otherwise the agreement will be unenforceable by law.

When an agreement satisfies all the above conditions laid down by

section 10 of the act, the agreement becomes a contract enforceable
by law. In the absence of the any the above elements, the agreement
does not become a contract enforceable by law and it does not get the
Status of a contract. So it has been said that all contracts are
agreements but all agreements are not contracts.
 Kinds of Contracts
The contracts are of following kinds:-

a. Express and implied contracts:

An express contract:
A contract made by oral words or by written letters is called an
express contract.
e.g. A makes a proposal to B in oral words , Mr. B will you sell your book
to me for Rs.30? B replies yes Mr. A I shall sell my book to you for
Rs.30 here A has made a proposal by oral words and B has accepted
As proposal by oral words. So a contract between A and B is said to
be an express contract.
An implied Contract:- A contract made by implied conduct of both the
parties is called an implied contract e.g. A stands in a queue for a bus.
Here A has made a proposal to travel by bus by his implied conduct.
The bus conductor allows A to step into the bus. Here As proposal
has been accepted by the bus conductor by his implied conduct.
Therefore, A and bus conductor have made a contract by their implied
conduct so the contract is called an implied contract.
Kinds of Contracts
b. Contract in fact and Contract in Law or Quasi Contract:-

Contract in Fact:- Where a contract is made by a proposal made by one

party and it is accepted by the other party it is called a contract in fact.
e.g. A makes a proposal to b to purchase B motor car for Rs.60,000/-
B accepts As proposal . This is called a contract in fact.

Contract in law or Quasi Contract:- Where there is no proposal and no

acceptance of proposal between parties, but one party does some act
for the other party and the other party receives the benefit of such act
the law creates a contract between them and such a contract is called
a contract in law or a quasi contract.
Kinds of Contracts
e.g. A finds out Bs lost purse of money, A returns the purse to B with all
money. Here B is bound to pay travelling expenses , advertisement
charges to A as per the rules of Quasi contract.

c. An executed contract and executory contract:-

An executed Contract:-
It is a contract where both the parties, have performed their respective
parts of the contract e.g. A has agreed to sell his motorcar to B for
Rs.60,000. According to the agreement A delivers the possession of
the Motorcar to B and B pays Rs. 60,000 to A. Here A and B have
performed their respective parts of contract so the contract is called an
executed contract.
Kinds of Contracts
An executory Contract:-
Where both the parties to the contract have to perform their contractual
obligations in future it is called an executory contract. E.g. A contracts
to sell his motorcar to B for Rs.30,000. Both the parties have decided
to perform their contractual obligations one month after the date of the
contract.
Here the contract between A and B is called an Executory Contract.

d. A Valid Contract and a Void Contract, Voidable contract:-

A Valid Contract- it is a contract that fulfills all conditions prescribed by

Section 10 of the Indian Contract Act e.g. a proposal and acceptance,
competent parties , free consent, lawful object and lawful consideration
etc, so a contract enforceable by law is called a valid contract.
Kinds of Contracts
A void Contract:-Where contract becomes impossible of performance by
change of law or by illness of the party to a contract, it is called a void
contract e.g. A has agreed to perform a musical programme at Bs
theatre on 15th August. A falls sick and is unable to perform the
musical programme. Here the contract is a void contract. A void
contract is not enforceable by law.

A voidable Contact:- A contract that is enforceable by only one party and

not by the other party is called a voidable contract. E.g. A obtains Bs
consent to the contract by fraud or threat or coercion the contract is
voidable at the option of B. B has the right to cancel the contract.
Formation of a Contract-
Proposal and Acceptance of a
Proposal
According to Section 2h of the Indian Contract Act, An agreement
enforceable by Law is a contract. Therefore, for the formation of a
contract here must be an agreement between two persons in the first
instance. So an agreement between the persons is the first step of a
formation of a contract.

For the formation of an agreement:-

There must be at least two persons because a person cannot enter
into an agreement with himself.
Out of the two persons making an agreement, one person should
make the proposal and the other has to accept it.
Formation of a Contract-
Proposal and Acceptance of a
Proposal
So an agreement is a combination of two ideas namely a proposal and
an acceptance of a proposal.

A proposal:- it is the starting point in the formation of an agreement. A

proposal is called an offer under the English law.
A proposal means an expression of desire by one person to another to
do or not to do something and the desire is expressed to obtain one
persons consent.
E.g. A expresses his desire to B to buy his horse for Rs.1000. This
expression of desire to buy A to B is called a proposal.
Formation of a Contract-
Proposal and Acceptance of a
Proposal
Therefore section 2 a of the Indian Contract Act defines a proposal as,
When one person signifies to another his willingness to do or to
abstain from doing anything with a view to obtaining the assent of
another to such an act or abstinence , he is said to make such a
proposal
The person making the proposal is called a PROMISOR and the
person who accepts the proposal is called the PROMISEE.

A proposal is therefore, an expression of desire by one person to another

to do or not to do something with a view to obtain the acceptance of
another to such an act or abstinence. But every expression of desire or
willingness to do an act is not a proposal.
Formation of a Contract-
Proposal and Acceptance of a
Proposal
The proposal must satisfy the following legal conditions:-
1. The proposal must be made to do a definite and possible act.
2. A proposal or an offer must be made with a view to be accepted by
the other . If a person simply wants to inform the other his desire to do
an act, such a statement is not a proposal.
3. A proposal must be made with a view to create legal relations , so
that if the proposal is accepted by the other party, both the parties to
an agreement must have the intention to go to the courts of law to
enforce each others acts or obligations.
4. A proposal is different from an invitation to make a proposal. Incase
of an actual offer, the agreement is formed as soon as the proposal is
accepted by the other party. While in an invitation to offer, it is simply
an invitation to make proposals.
Formation of a Contract-
Proposal and Acceptance of a
Proposal
5. An inquiry as to price of goods is not a proposal itself so the reply given
to an inquiry is not an acceptance of a proposal.
6. A proposal must be communicated to the promisee i.e the proposal
must be known to the other person . A proposal may be communicated
by oral words, written letters, by telephone, by telegram or even by any
act or conduct of the person.
7. Further , the terms and conditions of a contract must have been
effectively communicated to other party to form these conditions as a
part of the contract.
8. A proposal may be made to an individual or to a group of persons or to
the world at large.
9. The proposal may prescribe conditions of its acceptance, such as the
proposal may prescribe the payment of deposit by the person
accepting the proposal or it may prescribe the period within which the
proposal should be accepted.
Formation of a Contract-
Proposal and Acceptance of a
Proposal
Acceptance of a Proposal:-

When the other person expresses his consent to the proposal, he is

said to have accepted the proposal.
So Sec 2b defines the acceptance of a proposal as- When the person
to whom the proposal is made signifies his assent thereto the proposal
is said to be accepted.
A few legal conditions of acceptance according to section 7 are:-
1. Acceptance must be absolute and unqualified.

2. Acceptance must be communicated in written form or oral words.

3. Acceptance must be made within a reasonable time.

4. Acceptance cannot be made in ignorance of the terms and conditions

of the proposal.
Formation of a Contract-
Proposal and Acceptance of a
Proposal
5. Acceptance should be made by a person to whom the proposal has
been made.
6. Acceptance of the proposal must be communicated to the other party.
7. Silence of the promisee does not mean that he has accepted the
proposal.
8. A proposal once rejected cannot be accepted subsequently.

Acceptance therefore converts a proposal into a binding promise and

according to Anson an acceptance of a proposal is like a lighted
match to a train of gun powder. It produces something which cannot
be recalled or undone. Similarly when a proposal is accepted it
becomes a promise and neither the proposal remains nor its
acceptance remains.
Consideration
We know that an agreement requires a proposal and its acceptance. But
to be enforceable by law as a contract , an agreement must be
supported by consideration. Consideration is an important requisite of
a valid contract. The law does not enforce a promise for nothing or a
gratuitous promise and by the requirement of consideration , law
compels both the parties to an agreement to do something for each
other. So an agreement without consideration I void and not at all
enforceable by law.

e.g. An agreement between A and B , that A shall pay B Rs.1000 for

nothing , is an agreement without Consideration and it is a void
agreement.
Consideration
Consideration is the only means by which one party can compel the
other party to perform his obligation under the contract. Contract is a
bargain of give and take and both the parties must receive some
benefit under the contract.

The term Consideration is understood differently in a legal sense . In

legal sense Consideration means something in return. Consideration
is a price paid by one party to purchase the promise of the other.

e.g. A agrees to sell his house to B for Rs.1,00,000. here As promise to

sell his house to B is a consideration for Bs promise to pay A
Rs.1,00,000 is a consideration for As promise to sell his house to B.
Consideration
Section 2b of the Indian Contract Act defines Consideration as:-

When at the desire of the promisor , the promisee or any other person
has done or abstained from doing, or does or abstains from doing or
promises to do or to abstain from doing something, such act,
abstinence or promise is called consideration for the promise

E.g. A promises to sell his book to Q for Rs.10 . This is an agreement

enforceable by law as a contract.
E.g. Thus A promises to pay B Rs.500 if B does not canvass votes for C.
Here Bs abstinence to canvas votes for C is a consideration for As
promise to pay B Rs. 500.
Consideration
E.g. X promises Y not to file a suit against Y if Y pays him Rs.1000 by a
fixed date. Y pays X Rs.1000 by the fixed date. Here, the forbearance
of X is in consideration for Ys payment of Rs.1000 to X.

COMPETENT PARTIES:-
It is essential to an idea of a contract that the parties to a contract are
competent to contract. According to Section 11 every person every
person who is of
1. Age of majority

2. Who is of sound mind

3. Who is not disqualified from contracting by any law to which he is

subject, is a competent party to a contract.
COMPETENT PARTIES:-

1. Age of majority:-
A person is deemed to be of the age of majority when he has
completed the age of 18years, and if he has a property for which any
superintendent or any guardian is appointed to look after the property
or his person, or if his property is in the charge of court of wards he is
deemed to be of the age of majority when he has completed the age of
21 years.
Where a person has not completed the age of 18 years or 21 years ,
he is regarded as a minor person, and he cannot enter into any
contract. In other words, a minor is incompetent to contract. In England
a person is regarded of the age of majority when he ha completed the
age of 21 years. t.
COMPETENT PARTIES:-

The following conditions must be noted in connection with a minors

position in law under the India Contract Ac
a. A minors agreement is altogether void in law, and a minor cannot bind
him by a contract. But a minor can become a promisee or a payee or
endorsee of a cheque or transferee of a property.
b. Since a minors contract is void ab initio i.e. void from the very
beginning, it cannot be ratified by the minor on attaining the age of
majority.
c. If the minor has obtained any benefit, such as money on mortgage , he
cannot be asked to refund the money nor can mortgaged property be
made liable to pay money.
d. A minor cannot be declared insolvent because he is not bound to
discharge any debt.
COMPETENT PARTIES:-

e. A minor is liable to injury done to anothers property.

f. A minor can be appointed as an agent and also he can be admitted to

the benefits of a partnership firm. But there also he is not personally
liable for any act done by him for the firm.

g. A minor can be admitted to the benefits of a partnership firm. But his

share of property and his share of profits in the firm are liable for the
debts of the firm.
COMPETENT PARTIES:-

2. Sound mind:-
A person is said to be of sound mind for the purpose of making a
contract if he is capable of understanding it and if he can form a
rational judgement as to the effects of contract upon his own interest.
i.e. when he is in a position to understand whether any contract
entered into by him is advantageous or disadvantageous to him.
Other person may not know that the contracting party is of unsound
mind. So a contract made by a person of unsound mind is void.
COMPETENT PARTIES:-

A person who cannot so judge the effects of a contract on his own

interest is said to be of unsound mind and cannot enter into any
contract.
A lunatic, an idiot or a drunken person therefore cannot enter into a
contract as they are labouring under a mental disorder.

A drunkard person my enter into a contract when he is not drunk or

lunatic may make a contract when he is sane.

However the property of the lunatic is liable to pay the price of

necessities supplied to him or to his dependants.
COMPETENT PARTIES:-

3. Persons Disqualified from Contracting :-

Though a person is of the age of majority and of sound mind he is not

competent to contract if he is disqualified from contracting by any laws
of his nation. Such type of persons are:-
1. Alien Enemies
2. Foreign Sovereigns. Because Indian Law courts cannot take
cognizance of suit filed against them for breach of contract and
3. Foreign Ambassadors appointed to India.
4. Convicts (officially declared guilty of criminal offense )
5. Corporations
Provisions relating to Free
Consent:-
1. When two persons desire to enter into a contract there must be a
concurrence of minds (consensus ad idem) or consent of both the
parties. That is to say , they must have consented to the terms of the
agreement. Consent is defined by Sec 13. of the act as
When two or more parties agree upon the same thing in the same
sense, they are said to consent
So without the correct and complete understanding on all the terms of
contract there can be no contract between the parties. If one of them
makes a proposal with some particular meaning and the other
understands it differently , there is no concurrence of minds and the
parties cannot be said to have consented upon the terms of a contract
e.g. out of two houses a seller intends to sell the house no.1 but the
buyer thinks that he is purchasing the house n.2 . This is not an
agreement because their understanding differs on the subject matter
of contract.
Provisions relating to Free
Consent:-
1. It must be noted that further that only the consent of the parties is not
sufficient but there must be free consent of parties.
2. Section 14 of the Act provides that a Consent is said to be free when
it is not caused by
3. A. Coercion

4. B. Undue influence

5. C. Fraud

6. D. Misrepresentation

7. E. Mistake.

For a contract to be valid is not only necessary that parties consent but
also that they consent freely. Where there is a consent, but no free
consent, there is generally a contract voidable at the option of the
party whose consent was not free.
Provisions relating to Free
Consent:-
1. Coercion :-
2. Coercion is the committing or threatening to commit any act forbidden
by the Indian penal code or the unlawful detaining or threatening to
detain any property to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement. Coercion
may not proceed from contracting party and may not be devoted
against other contracting party. It may be directed against any third
person whatever.
E.g. A Hindu widow is forced to adopt X under threat that her husbands
dead body would not be allowed to be removed unless she adopts X.
The adoption is voidable as having been induced by coercion. (
Ranganayakamma Vs Alwar Setti )
1. A threatens to kill B (Cs son) if C does not let out his house to A. The
agreement is caused by coercion.
Provisions relating to Free
Consent:-
A threatens to kill B (Cs son) if C does not let out his house to A. The
agreement is caused by coercion in Indian law. A person is said to
employ duress if he obtains the consent of the other party to a contract
under the fear caused by threats of bodily violence and imprisonment .
In duress threat must proceed from the contracting party or his agent
and must be aimed at the other contracting party or his near relative
such as wife , child or a parent. Threat to destroy or detain property
will not amount to duress. In these two respects the coercion is much
wider than duress or menace. (a) Coercion my proceed from any
person and may be directed against any person, even against a
stranger to a contract (i.e a person who is not a party to contract ) and
(b) Coercion also includes a threat to destroy or detain property of
other, unlawfully.
Provisions relating to Free
Consent:-
3. Undue influence:- A contract is said to be induced by undue
influence when the relations subsisting between the parties are such
that one of the parties ; is in a position to dominate the will of the other
and uses that position to obtain an unfair advantage over the other

e.g. A having advanced money to his son B during his minority, upon B
coming of age, obtains , by misuse of parental influence, a bond from
B for greater amount than the sum due in respect of the advance . A
employs undue influence.

A , a spendthrift and a weak minded just come of age, conveys a share of

his family estate to his father-in-law for nominal consideration. Undue
influence is presumed to have been exercised (Ram Krishan Vs.
Parmeshwara 1931)
Provisions relating to Free
Consent:-
4. Fraud:- Sec 17 says Fraud means and includes any of the following
acts committed by a party to a contract or with his connivance
(secretly allow something wrong) or by his agent with intent to deceive
another party thereto or his agent; or to induce him to enter into the
contract-
1. The suggestion as to a fact, of that which is not true by one who does
not believe it to be true. A false statement intentionally made is fraud.
E.g. A represents B that a certain house belongs to C and induces him
to purchase it. A knows that the house actually belongs to F and not to
C and B is thereby deceived. This is fraud by A, i.e. making a
suggestion, that a particular fact is true knowing that it is false;
2. 2. The active concealment of a fact by one having knowledge or belief
of the fact;
3. A promise made without any intention of performing it e.g. purchasing
of goods on credit without the intention of paying for them;
Provisions relating to Free
Consent:-
4. any other act fitted to deceive;
5. any such act or omission as the law specially declares to be
fraudulent.

e.g. B says to A, if you do not deny it, I shall assume that the horse is
sound. A says nothing. Here As silence is equivalent to speech. If the
horse is unsound As silence is fraudulent .

The essence of fraud is that a party must have deliberately attempted

to deceive the other party either by concealing truth or by making
willfully false statements with the knowledge that they are false.
Provisions relating to Free
Consent:-
4. Misrepresentation:- Like fraud ,misrepresentation is incorrect or
false statement but the falsity or inaccuracy is not due to any desire to
deceive or defraud the other party. It is innocent. The party making it
believes it to be true.

E.g. A informs B that his estate is free from Encumbrance. B

thereupon buys the estate. In fact, the estate is subject to mortgage,
though unknown to A also. B may either avoid the contractor may
insist on its being carried out and the mortgage debt redeemed.

5. Mistake :- A mistake maybe define as a erroneous belief concerning

something. E.g. A agrees to buy from B a certain horse . It turns out
that the horse was dead at the time of the bargain, though neither
party was aware of it. The agreement is void
Provisions relating to Void
agreements:-
According to Section 2(g) an agreement not enforceable by law is a
void agreement. By Void agreement, no rights and no obligations are
created and parties are not bound by the terms of the agreement. It is
destitute of legal effect. A void agreement is a nullity and has no
existence in the eyes of the law.
The Indian Contract Act has declared the following agreements as
expressly void because of their mischievous tendency, they are
declared to be void on the grounds of public policy.
1. Agreement in Restrain of marriage:- According to Section 26 of the
Contract Act, Every Agreement in restrain of the marriage of any
person , other than a minor is void e.g. A promised to marry B and in
default pay her a sum of R.1000. A married someone else and B sued
A for recovery of the sum. The contract was in restrain of marriage and
as such void.
Provisions relating to Void
agreements:-
2. Agreement in Restrain of Parental Rights:- According to the law the
father is the guardian of his minor child, after the father , the right of
guardianship vests in the mother. This right cannot be bartered away
by any agreement . Thus the authority of a father cannot be alienated
irrecoverable and any agreement purporting to do so is void.

e.g. A father having 2 minor sons agreed to transfer their guardianship in

favour of Mrs Annie Besant and also agreed not to revoke the
transfer. Subsequently, he filed a suit for recovery of the boys and a
declaration that he was the rightful guardian , the Court held that he
had the right to revoke his authority and get back the children.
(Giddu Narayanish V. Mrs Annie Besant (1915) 38 Mad .P .C )
Provisions relating to Void
agreements:-
3. Agreements for Stifling(restrain or prevent) prosecution :-
Contract for Compounding or suppression of criminal charges, for
offences of a public nature are illegal and void. The law is you cannot
make a trade of your felony (crime). You cannot convert crime into a
source of profit

The underlying principle is

if the accused is innocent ,

the law is abused (used wrongly) for the purpose of extortion (obtain by
force or threat) :
if guilty , the law is eluded(escaped) by a corrupt compromise screening
the criminal for a bribe
Provisions relating to Void
agreements:-
4. Impossible Acts :- Sec 56 Para 1 says An Agreement to do an act
impossible in itself is void e.g. A agrees with B to discover treasure by
magic. The agreement is void because the act is impossible or A
agrees to pay B Rs.1000. if B meets two parallel lines together. The
agreement is void because the Act is impossible.

5. Uncertain Agreements:- The agreements, the meaning of which is

not certain or capable of being made certain are void.
e.g. A agrees to sell to B one hundred tons of oil. The agreement is void
for uncertain meaning because there is nothing to show what kind of
oil was intended. If the type of oil was specified
A agrees to sell to B , one thousand maunds of rice at a price to be
fixed by C. As the price is capable of being made certain, there is no
uncertainty here to make the agreement void So the agreement is
valid.
Provisions relating to Void
agreements:-
6. Wagering Agreement :- A wagering agreement is an agreement to
pay money or moneys wroth on the happening or non-happening of
an uncertain future event or on determination or ascertainment of the
result of a certain future event. Thus A and B agree that A shall pay B
a sum of Rs.10 if it rains on Monday and B shall pay the same amount
to A if there is no rain on Monday. This is a wagering agreement.
Thus a wagering agreement is an agreement under which money or
moneys worth is payable , by one person to another on the happening
or non-happening of a future , uncertain event.
e.g. A and B bet as to whether it would rain on a particular day or not. A
promising to pay Rs.100 to B if it rained, and B promising an equal
amount to A, if it did not. This agreement is wager. A and B agree to
deal with the differences in prices of a particular commodity. Such an
agreement is a wager.
Provisions relating to Void
agreements:-
7. Contracts of Insurance :- Contracts of Insurance are not wagering
agreements even though the payment of money by the insurer may
depend upon a future uncertain event. Contracts of Insurance differ
from the wagering agreements in the following respects :
1. It is only a person possessing an insurable interest that is permitted to
insure life or property, and not any person , as in the case of a wager.
2. In the case of fire and marine insurance , only the actual loss suffered
by the party is paid by the company, and not the full amount for which
the property is insured. Even in case of life insurance, the amount
payable is fixed only because of the difficulty in estimating the loss
caused by the death of the assured in the terms of money, but the
underlying idea is only indemnification.
3. Contracts of insurance are regarded as beneficial to the public and are
therefore, encouraged. Wagering agreements , on the other hand , are
considered to be against public policy.
Provisions relating to Void
agreements:-
8. Contracts interfering with the course of justice:- Any agreement for
the purpose or to the effect of using improper influence of any kind
with judges or officers of justice is void.

9. Contracts tending to create monopolies:- Such agreements are void

being opposed to public interest.
e.g. In district Board of Jhelum VS Harichand 1934 Lah. 474 , a local boy
granted a monopoly to A to sell vegetables in a particular locality.
The agreement was void.

10. Trading with the enemy:- All contracts made with an alien enemy are
illegal unless made with the permission of the Government.
Provisions relating to Void
agreements:-
11. Agreements for Sale of Public offices and titles:- Traffic by way of Sale
in Public offices and appointments obviously tends to the prejudice of
the public service by interfering with the election of the best qualified
persons. Such sales , are therefore, unlawful and void.
e.g. A promises to pay B Rs.5000 if B secures him an employment in the
public service. The agreement is void.
e.g. A promises to pay a sum to B in order to induce him to retire so as to
provide room for As appointment to the public office held by B, the
agreement is void.

12. Marriage Brokerage or Brokerage Contract:- A marriage brokerage

contract is one in which, in consideration of marriage, one or the other
of the parties to it, or their parents or third parties receive a certain
sum of money. Accordingly , dowry is a marriage brokerage and hence
unlawful and void.
Remedies for a breach of a
contract:-
A party whose contract has been broken by the other party has three
remedies against the party breaking the contract:

1. He can file a suit against the other party for damages for any loss
caused to him by the breach of contract,

2. Or he can sue the other party for specific performance of contract to

compel him to do what he has promised to do,

3. Or he can file a suit for injunction (a court order stating that someone
must or must not do something) to prevent him from committing the
breach of obligation arising out of a contract.
Remedies for a breach of a
contract:-
As soon as either party commits a breach of the contract, the other
party becomes entitled to any of the following reliefs:-
1. Rescission of the Contract:- When a breach of contract is committed
by one party, the other party may sue to treat the contract as
rescinded(cancel a law or order). In such a case the aggreviated party
is freed from all his obligations under the contract. E.g. A promises to
supply 100 bags of rice on a certain date to B and B in turn promises
to pay the price on receipt of goods. A does not deliver the goods on
the appointed day, B need not pay the price.
2. Damages:- it is the money paid to compensate for a loss or injury.
E.g. A contracts to deliver 100 bags of rice at Rs.100 per bag on a
future date. On the due date he refuses to deliver. The price on that
day is Rs.110 per bag. The measure of damages is the difference
between the market price on the date of the date of the breach and the
contract price, viz., Rs.1000.
Remedies for a breach of a
contract:-

1. 3. Specific performance :- Where damages are not an adequate

remedy, the court may direct the party in breach to carry out his
promise according to the terms of the contract. This is called Specific
performance of the contract.

2. 4. Injunction:- Means an order of the court. Where a party is in breach

of a negative term of contract (i.e. where he does something which he
promised not to do), the court may issue an order , prohibit him from
doing so.
3. E.g. A agreed to buy the whole of the electric energy required for his
house from a certain company. He was therefore , restrained by an
injunction from buying electricity from any other person. (Metropolitan
Electric Supply Company Vs Ginder)
Remedies for a breach of a
contract:-
5. Quantum Meruit :- The phrase Quantum Meruit mean as much as is
merited or earned. The normal rule of law is that unless a party has
performed his promise in its entirely , it cannot claim performance from
the other. To this rule , however, there are certain exceptions on the
basis of Quantum meruit. A right to sue on a quantum meruit arises
when a contract , partly performed by one party, has become
discharged(dismissed) by the breach of the other party.

5. E.g. A contracts with B to deliver to him 250 kilos of rice before May
1st. A delivers 130 kilos only before may 1st and none after. B retains
the 130 kilos after the first of May. He is bound to pay A for them.
Performance of a contract:-
5. A contract creates obligations. Performance of a contract means the
carrying out of these obligations . Section 37 requires that the parties
to a contract must either perform or offer to perform their respective
promises, unless such performance is dispensed with or excused
under the provisions of the Contract Act, or any other law.

WHO MUST PERFORM ?

The promise may be performed by the promisor himself or by his
agent or by his legal representative.
If it appears that it was the intention of the parties that the promise
should be performed by the promisor himself, such a promise must be
performed by the promisor. E.g. A promises to paint a picture for B, A
must perform this promise personally.
Performance of a contract:-
In cases other than the promisor or party specified, the promisor may
employ a competent person to perform it. E.g. A promises to pa B a
sum of money, A may perform this promise personally or causing it to
be paid to B by another.
In case of death of the promisor, the legal representative must perform the
promise unless a contrary intention appears from the contract.
E.g. A promises to deliver goods to B on a certain day on payment of
Rs.1000. A dies before that day. As legal representatives are bound to
deliver the goods to B and B is bound to pay Rs.1000 to As legal
representatives.
Performance of a contract:-
CONTRACTS THAT NEED NOT BE PERFORMED:-

1. If the parties mutually agree to substitute the original contract by a new

one or to rescind or alter it. (Sec 62)
2. If the promisee dispenses with or remits, wholly or in part the
performance of the promise made to him or extends the time for such
performance or accepts any satisfaction for it (Sec 63)
3. If the person at whose option the contract is voidable , rescinds it (Sec
64)
4. If the promisee neglects or refuses to afford the promisor reasonable
facilities for the performance of his promise (Sec67)
Provisions relating to
Performance of a contract:-
Rules regarding the Time, Place and Manner of performance of Contracts
(Sec 46-50):-
1. Sec 47-Where the time for performance has been specified and the
promisor has undertaken to perform it without application by the
promisee, the promisor must perform on the day fixed during the
usual business hours and at the place at which the promise ought to
be performed.
2. Sec 46- Where the time of the performance is not specified and the
promisor agrees to perform without a demand from the promisee, the
performance must be made within a reasonable time, in each
particular case, a question of fact.
3. Sec 48 Here a promise is to be performed on a certain day, and the
promisor had not undertaken to perform it without application by the
promisee, the promisee must apply for performance at a proper place
and within the usual business hours.
Provisions relating to
Performance of a contract:-
4. Sec 49- When a promise is to be performed without application by the
promisee and no place is fixed for its performance, the promisor must
apply to the promise to the promisee to appoint a reasonable place for
the purpose of receiving it and must deliver it to him at such a place .

5. Sec 50- The performance of any promise may be made in any manner
or at any time which the promisee prescribes or sanctions.
e.g. A owes B Rs.2000. B accepts some of As goods in deduction of the
debt. The delivery of the goods operates as a part payment.
Provisions relating to
Discharge of a contract:-
A discharge of contract basically means the termination of a
contractual relationship between a promisor and a promisee.
When the contract gets terminated, it is said to be discharged.

The cases in which a contract is discharged may be classified as follows:-

A. By performance or Tender.

B. By mutual consent.

C. By subsequent impossibility.

D. By operation of law.

E. By breach.
Provisions relating to
Discharge of a contract:-
A. By performance or Tender:- The most important and obvious mode of
discharge of a contract is the performance, that it where the parties
have done whatever was contemplated under the contract, the
contract comes to an end.
B. By Mutual Consent:- if the parties to a contract agree to substitute a
new contract for it, or to rescind it or alter it, the original contract is
discharged. A contract may terminate by mutual consent in the
following ways:
1. Novation - Means substitution of a new contract for the original one.
The new contract may be either substituted between the same parties
or between different parties.
2. Rescission- Means cancellation of all or some of the terms of the
contract. Where parties mutually decide to cancel the terms of the
contract, the obligations of the parties there under terminate.
3. Alteration- if parties mutually agree to change certain terms of the
contract, it has effect of terminating the original contract. There is
however no change in parties.
Provisions relating to
Discharge of a contract:-
4. Remission- It is a acceptance of a lesser sum than what was contracted
for or a lesser fulfillment of the promise made.
e.g. A owes to b Rs.500. A pays B who accepts in satisfaction of the
whole debt Rs.2000 paid at the time and place at which Rs.5000 were
payable. The whole debt is discharged.
5. Waiver- means relinquishment or abandonment of a right. Where a
party waives his rights under the contract, the other party is released
of his obligations.
C. By Subsequent impossibility:- Impossibility in a contract may either be
inherent in the transaction or it may be introduced later by change of
certain circumstances material to the contract.
e.g. A promises to pay B Rs.50000 if B rides on horse to the moon. The
agreement is void ab initio. The impossibility of this case is an inherent
transaction, Such a contract is void ab initio.
Provisions relating to
Discharge of a contract:-
D. By operation of law:- is by allowing the law in force or to take
assistance of the law in force which should be in a position to
discharge the contract.
1. By Death- Death of a promisor results in the termination of the contract
in cases involving personal skill or ability.
2. By Insolvency- The insolvency acts provide for discharge of contracts
under certain circumstances. So , when an order of discharge is
passed by an insolvency court, the insolvent stands discharged of
liabilities of all debts incurred previous to his adjudication.
3. By Unauthorised alteration of terms of a written document- where any
of the parties alters any of the terms of the contract without seeking
the consent of the other party to it, the contract terminates.
Provisions relating to
Discharge of a contract:-
E. By Breach of Contract- It means the refusal or the inability of the
promisor to perform his promise , or any negligence on his part to
perform it.
Breach may of 2 types, actual breach and anticipatory Breach.
Actual breach means that, the promisors obligation has not been
performed after it became due.
Anticipatory breach means that the promisor has repudiated his obligation
even before it became due.

Thus, to conclude it can be stated that although there are a number of

modes of discharging a contract, the most useful mode would be to
allow the law in force to make a decision with regards to discharging a
contract as per the provisions of the Contract Act.
Thank you.